Do IMCD's (AMS:IMCD) Earnings Warrant Your Attention?

By
Simply Wall St
Published
November 11, 2021
ENXTAM:IMCD
Source: Shutterstock

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in IMCD (AMS:IMCD). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for IMCD

IMCD's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, IMCD's EPS has grown 19% each year, compound, over three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. IMCD maintained stable EBIT margins over the last year, all while growing revenue 13% to €3.1b. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
ENXTAM:IMCD Earnings and Revenue History November 12th 2021

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future IMCD EPS 100% free.

Are IMCD Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a €11b company like IMCD. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth €208m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over €7.0b, like IMCD, the median CEO pay is around €2.6m.

IMCD offered total compensation worth €2.2m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Is IMCD Worth Keeping An Eye On?

You can't deny that IMCD has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes IMCD look rather interesting indeed. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with IMCD , and understanding these should be part of your investment process.

Although IMCD certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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